Chart

Figure 3.5. The Probability of an Asset Price Bust
(Percent of times a bust occurs 1–3 years after an alarm is raised relative
to the unconditional probability of a bust)
For house price busts since 1985, large deviations in credit, current account, and
residential investment to GDP are particularly predictive of the likelihood of an
impending bust. In the case of stock price busts, these variables are also more
predictive than the unconditional probability, though the difference is smaller.
1985–2008
House Price Busts
Credit/GDP
Current account/GDP
Residential
investment/GDP
House price growth
Stock price growth
Growth
Inflation
Credit, current account,
and residential investment
-10
0
10
20
30
40
50
0
10
20
30
40
50
Stock Price Busts
Credit/GDP
Current account/GDP
Residential
investment/GDP
House price growth
Stock price growth
Growth
Inflation
Credit, current account,
and residential investment
-10
Source: IMF staff calculations.